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Cablegate: Madrid Weekly Econ/Ag/Commercial Update Report -

VZCZCXRO6023
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHMD #1489/01 2111429
ZNR UUUUU ZZH
R 301429Z JUL 07
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 3110
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 2950

UNCLAS SECTION 01 OF 04 MADRID 001489

SIPDIS

SIPDIS

EUR/WE

E.O. 12958: N/A
TAGS: EAGR ECON EFIN EIND ELAB ENRG ETRD KIPR PTER
SENV, SP, EINV, UK
SUBJECT: MADRID WEEKLY ECON/AG/COMMERCIAL UPDATE REPORT -
JULY 23


MADRID 00001489 001.2 OF 004


Table of Contents:

EFIN: VP & Finance Minister Solbes will not compete in a tax
cutting "auction" with opposition
KIPR: 16 arrested for Internet Piracy
PTER: Two Syrians arrested for channeling funds for the Jihad
EAGR: EC may be forced to change AG biotech evaluation process
EAIR: Iberia allies with AA to request anti-trust immunity
ECON: Budget surplus for Spain for first half of 2007
EAIR/EIND: Ministry of Industry to increase investment in
aviation sector
EIND/EINV: Announcements for major biodiesel production
plants in Spain continue
SENV/ENRG: GOS announces environmental plans focusing on
energy and climate change
EINV: Carlyle group wins Applus bid
EINV: Manuel Jove acquires 5% of BBVA
ENRG: Call for Spanish national energy policy
ELAB: Poor Representation of women on Spanish boards
ELAB: Delphi - union agreement settles final major hurdle to
closure of Puerto Real

VICE PRESIDENT AND FINANCE MINISTER PEDRO SOLBES SAYS HE WILL
NOT COMPETE IN A TAX CUTTING "AUCTION" WITH OPPOSITION
CONSERVATIVE PP PARTY

1. (U) The opposition Popular Party recently proposed tax
cuts on the order of euros 20 billion. The budget surplus
this year is euros 7 billion - Solbes says any tax cuts
should amount to considerably less than this figure given
future health and pension commitments. The Minister also
criticized Rodrigo Rato for leaving the IMF two years before
his term expired. Solbes also made it clear that would have
preferred more long-term measures to increase the fertility
rate in Spain, rather than the euros 2500 the Zapatero
government intends to give families for each new baby. (El
Pais, July 22)

SPANISH POLICE ARREST 16 PEOPLE FOR INTERNET PIRACY

2. (U) This was a big raid, and the arrests reflected the
large-scale commercial nature of much of the internet piracy
that goes on in Spain. For example, the groups sold a DVD
called "All in One," which provided software used in
neutralizing security systems. The DVD cost euros 9500 and
was bought by people specializing in installing pirated
software. The economic damages caused by the sale of just
this one product are estimated to have amounted to euros 80
million. (Comment: The arrests were conducted by the Spanish
police's Antipiracy and Technology Investigation Brigade.
This unit is highly respected by the content provider
community. The question is now whether the Spanish judiciary
will issue deterrent level sentences. In general, copyright
industry representatives respect police work against internet
pirates - they just wish there were more of it. The industry
is much more critical of the judiciary.) (El Pais, July 23)

TWO SYRIANS ARRESTED FOR CHANNELING FUNDS FOR THE JIHAD

3. (U) Syrian citizens Bassan Dalasi Satut (48 years old) and
Samer Dabbas (30 years old) were arrested Wednesday morning
in Madrid for channeling funds from radical extremists living
in Spain to the jihad. Some of the money came from Spanish
and foreign Islamist investors, and it was usually invested
in building houses that were later sold. The profits were
sent outside Spain. The police also seized 120,000 euros in
cash, press information related to international terrorism,
cell phones, and computer material. Minister of Interior
Rubalcaba said that the suspects had bank accounts in
different countries in the amount of 700,000 euros. Spanish
prosecutors are expected to charge the suspects with
cooperating with a terrorist organization, forging documents,
and money laundering. Bassan Dalasi Satut had taken over the
job of Mohamed Ghalef Kalaje Zouaydi, alias Abu Talha, who
was arrested in the Datil operation November 2001, and who is
serving a nine year jail sentence.

EC MAY BE FORCED TO CHANGE AGBIOTECH EVALUATION PROCESS

4. (U) A confluence of unintended consequences stemming from
agriculture policy may force the European Commission (EC) to
change its agriculture biotechnology evaluation process
and/or its renewable fuels goals. European Union (EU)
failure to act/react expeditiously to new agriculture
biotechnology, and the worldwide push for renewable fuels
production have led influential Spanish (and other EuropeQ)
compound feed and meat and poultry producers to challenge the
Commission. While Spanish grain farmers, who just harvested

MADRID 00001489 002.2 OF 004


record grain crops, revel in the confluence of record-high
production and high prices, Spanish compound feed, meat and
poultry producers suffer the latter. Spanish compound feed
producers do not have access to biotechnology corn produced
in the United States, nor to any of its by products i.e. corn
gluten feed, because the EC has not yet accepted the
biotechnology corn varieties that are now under U.S.
cultivation. In addition, new EU (Spanish ethanol production
is further limiting the grain available to Spanish compound
feed manufacturers. Could these events spell the beginning
of the end to EU-US differences in agriculture biotechnology?
We may be only one "short" world grain crop away from "yes."

IBERIA ALLIES WITH AMERICAN AIRLINES TO REQUEST ANTI-TRUST
IMMUNITY FROM DEPARTMENT OF TRANSPORTATION

5. (U) The relationship between Iberia and American Airlines
recently grew stronger after the two companies agreed to a
framework that would broaden their commercial and operational
cooperation. Iberia and AA submitted this framework
agreement to the Department of Transportation (DoT) in the
hopes of obtaining anti-trust immunity. Separately, Iberia
and AA filed an additional framework agreement for DoT's
approval between the two airlines and their Oneworld alliance
partners, Finnair, Royal Jordanian, and Malev. Iberia
representatives note that if approved, these agreements would
allow the company to offer more flight destinations,
flexibility in flying times and ticket purchases, and more
attractive frequent flyer mile programs. Iberia airlines
currently flies to DC, Miami, Boston, New York, and Chicago.

BUDGET SURPLUS FOR SPAIN FOR FIRST HALF OF 2007

6. (U) The Secretary of State for the Ministry of Economy and
Treasury, Carlos Ocana, announced this week that at the close
of the first half of 2007, Spain had a budget surplus of over
6 billion euros. In his announcement, Ocana added that the
surplus was expected to grow further in the second half.
According to the ministry, the surplus is a result of higher
than expected revenues, brought on partly by more aggressive
anti-fraud measures as well as higher than expected income
tax revenue generated by a favorable economic and employment
growth.

MINISTRY OF INDUSTRY TO INCREASE INVESTMENT IN AVIATION
SECTOR

7. (U) The Minister of Industry Joan Clos unveiled Spain's
strategic plan to boost the viability of Spain's aviation
sector over the next 8 years. Under this plan, which would
entail government investment of up to 11 billion euros
starting in 2008, Spain hopes to strengthen its aviation
sector's positioning vis a vis other European countries. The
Ministry of Industry's investment would support programs to
increase the sector's production capabilities as well as
research and development. In his announcement of the plan,
Minister Clos expressed hope that by 2016, Spain's aviation
sector would be able to make a more notable contribution to
the country's GDP.

ANNOUNCEMENTS FOR MAJOR BIODIESEL PRODUCTION PLANTS IN SPAIN
CONTINUE

8. (U) Madrid-based Elecnor, a widely diversified Spanish
utility company, plans to build one of the world's largest
biodiesel production plants in the port of Gijon, in the
northern region of Asturias. The 70 million euro
construction project will be completed in mid 2009 and will
produce up to 500,000 tons of biodiesel per year from
vegetable oil, according to the company (Reuters, July 18).
The Spanish biofuel company Biocarburantes Vascos announced
plans to build a large biodiesel plant in the Spanish North
African port of Cueta. The 44 million euro plant will have
production capacity of 200,000 tons of plant-based diesel
fuel per year. Construction of the Cueta-based facility will
be completed 16 months after land reclamation is finished.
The company also operates a 120,000 ton per year plant near
Seville, and is planning construction of three additional
plants in Spain (Reuters, July 26). Several other
Spain-based biodiesel production plants have been announced
in recent months, including Italian oil refining company
Sara's current construction of a 200,000 ton per year
biodiesel plant in Cartagena, Spain. (Reuters, June 6)
These new biodiesel production plants represent the market's
continued response to the GOS's decision to make the EU's
non-binding target of 5.75 percent biofuel usage in transport
fuels mandatory by 2010.


MADRID 00001489 003.2 OF 004


GOS ANNOUNCES ENVIRONMENTAL PLANS

9. (U) The GOS has recently made two environmental
announcements related to energy use and climate change. On
July 20, the GOS announced a new energy action plan for
2008-2012 entitled the Strategy of Saving and Energy
Efficiency. The plan will reportedly generate savings of
87.9 million equivalent tons of petroleum, and reduce CO2
emissions by 238 million tons. The GOS has committed nearly
2.4 billion euros to the plan, a more than 20% increase over
the previous plan for the same time period. In total, 59
specific "actions" have been identified to reach the plan's
goal, with efforts focused on seven industry sectors. The
plan will include economic incentives, specific GOS
initiatives and communication programs. (GOS, July 20) On
the same day, July 20, the Cabinet of Ministers approved more
than 80 "urgent measures" to fight climate change. Some of
the announced measures include better insulation in
government buildings, continued development of wind power and
the elimination of vehicle registration taxes for automobiles
that emit the least amount of CO2. Both
Vice-President/Minister of the Presidency Fernandez de la
Vega and Minister of the Environment Narbona emphasized that
climate change will continue to be a major priority of the
Zapatero Administration. (GOS, July 20)

CARLYLE GROUP WINS APPLUS BID

10. (U) The Carlyle group, teaming with Catalonian partners
Caixa de Catalunya, Caixa de Manresa, Caixa de Terrassa,
Caixa de Tarragona and the Real Automovil Club de Catalunya,
has closed its deal to purchase Applus for 1.48 billion
euros. Applus is a Spanish company whose business is the
inspection and certification of a range of items such as
cars, ships and factories. The owners of Applus , Agbar 53%,
Union Fenosa 25%, and Caixa Madrid 22%, will profit
handsomely from the deal. Agbar, the Barcelonan water
utility will enjoy a profit of 2l0 million euros and plans to
use the cash to pay off debt and expand its business. The
deal which is Spain's largest buyout in some time saw Carlyle
edge out France's Eurazeo whose bid offered similar
compensation but imposed more conditions on Applus .

MANUEL JOVE ACQUIRES 5% OF BBVA

11. (U) Galician business magnate Manuel Jove, who made his
fortune during the real estate boom as the founder of the
Spanish property company Fadesa, has acquired a 5% stake in
BBVA making him the largest single shareholder of the Spanish
bank. The move by Jove was made after assurances to the
Spanish bank that he had no intention of a takeover and would
not seek a spot on the board or make changes to management.
Jove's assurances were reportedly reassuring to the bank
which sees Jove's stake as a protective measure, having
recently fought off a bid by Sacyr Vallehermoso and is still
considered ripe for takeover after some years without
expansion.

CALL FOR SPANISH NATIONAL ENERGY POLICY

12. (U) The business organization CEOE has called on national
government to harmonize environmental law and policy among
the autonomous communities. CEOE advocates the establishment
of a national standard on emissions that apply to all
companies nationwide. CEOE is seeking a common standard to
ensure fairness in the application of environmental
regulations and level the playing field for businesses both
on a national and EU level. While Spain admits that it is
far off from meeting its Kyoto goals on emissions, Spanish
businesses have also stressed that Spanish regulation can at
times be overly harsh when compared to competitors operating
in other EU nations.

POOR REPRESENTATION OF WOMEN ON SPANISH BOARDS GETTING WORSE
NOT BETTER

13. (U) In spite of efforts to increase the presence of women
at the highest levels of Spanish business, the evidence
points to a worsening situation. Some progress was made in
2006 amid the debate and entering into force of the Unified
Code of Corporate Governance and the Law of Equality: women
board members on market listed corporations rose to 80, a 62%
increase. It is worth noting however that this seemingly
giant leap is to be considered against a total of 1,346 board
seats so the 62% increase is an increase from a very low
starting point. This year there is no doubt of a continuing
problem as more women have left the boardroom than have
entered it. In addition to this current trend there remains

MADRID 00001489 004.2 OF 004


the statistic that 15 of the Ibex 35 companies are without a
single female board member, including giants Telefonica,
Endesa, Theria, Gas Natural, and Altadis.

DELPHI - UNION AGREEMENT SETTLES FINAL MAJOR HURDLE TO
CLOSURE OF PUERTO REAL

14. (U) American car parts manufacturer Delphi reached an
agreement with UGT, its Puerto Real Plant's work-force union,
on July 9, affirming a prior agreement struck with the
Andalusia government. The agreement allows Delphi to move
ahead with its plan to close the factory located in Cadiz
province on July 31. The negotiated deal stipulates that
Delphi provide a more generous compensation package for its
displaced workers, that it assume 200 million euros worth of
debt, and that it turn over the factory and its machinery
(worth an estimated 160 million euros to the government of
Andalusia in order to speed the recovery and redevelopment of
the community. The total cost to be shouldered by Delphi
relating to the closure is estimated at 500 million euros
The agreement will likewise allow the Andalusia Business
Committee to move closer to finding a new owner for the
manufacturing plant. Catalonia's Ficosa is currently the
leading bidder. Ficosa would convert the factory into an
aeronautics plant.
AGUIRRE

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